A long pondered but only lately realized blog about economics, politics, evaluation, econometrics, academia, college football and whatever else comes to mind.

Saturday, June 6, 2009

Subsidizing selected consumer durables

The House has voted in favor of a bill to provide federal employees with four weeks of paid leave if they home produce or adopt a child.

Now, of course, it is for the children, so we really should not be even doing any THINKING around this because, you know, children are cute and they are the future. But, economists get paid to think when others cannot be bothered so let us do think a bit about this policy and the related article linked to above.

In terms of the article, the bit about only four countries not having paid parental leave is so ridiculous as to nearly defy description. The article dutifully links to a wikipedia page which informs us of such facts as that women in Ethiopia get 90 days of paid leave at 100 percent salary. Left out: this presumably applies only to women who work in the formal sector and is probably not enforced even there except for women working for multi-nationals and for the central government. A similar point applies to essentially every other country on the list, though perhaps less strongly, other than Japan, the US, Canada and most of Europe.

More broadly, think about the economics and the ethics. Children are a durable consumption good. Parents control (or should control) the timing and number of children they obtain. Boats are durable consumption goods. Parents control the timing and number of boats they obtain. Why should boats and children be treated differently? Why should owners of children receive a subsidy from owners of boats but not the reverse? This is clearly distortionary - welfare triangles are being tossed out.

Children are, of course, future adults, and the state bears some responsibility for them even in a liberal society. We would all, almost certainly, agree to such behind a veil of ignorance before we know our parents, as some government monitoring of parental behavior helps to solve the principal agent problem between the child and his or her parents.

I think one can make an argument for mandatory unpaid parental leave on this basis, perhaps with an exception for parents able to provide care from other family members or high quality paid care during this time. That is, I can see a case to be made for the government to forbid parents to sign contracts under which they would work immediately after obtaining a child while leaving the child without good care. The state, in this case, is limiting parental behavior that might be detrimental to the child.

On the other hand, I do not see how one can get to paid parental leave. There is a bank on every corner. All of them offer savings accounts. Even if parents fail to plan for conception, they still have nine months to save up until the birth. If they cannot manage to do this, are they really the sort of people who should be encouraged to have children? So, contra the Salon blogger, newborns should perhaps not rejoice about this legislative development, at least not the ones at the margin.

I am also uncomfortable with the implied transfer from non-parents to parents. Children are not a public good. In many contexts, like on an airplane, they are more often public bads. Moreover, there is no shortage of willing adults who would like to migrate to the US, and whose education has helpfully been paid for by others, so one cannot make an argument that we need to subsidize the production of children to pay for our badly designed (thank you FDR) pay-as-you-go pension scheme. Thus, if we decide we must have paid parental leave for federal employees (already well known in the literature to be over-compensated relative to similar workers in the private sector) I would make it into a forced savings scheme. Once a worker is aware that a child is coming, they should be able to obtain paid parental leave, with the pay they receive during the leave deducted in fixed amounts over some longish time period from their paychecks before and after the leave. If they leave the employ of the federal government before they have finished the payments, the remainder becomes due as a lump sum.

Note that my scheme has the advantage of being budget neutral, other than the additional administrative costs associated with the payment scheme (which really ought also to be charged to those who use it). It also eliminates the unfair cross-subsidy from childless couples and removes the subsidy to fertility.